Marketplace Facilitator Tax: A Complete Guide for Ecommerce Sellers

You sell products on Amazon, and sales tax gets collected automatically at checkout. You assume Amazon handles everything, so you stop filing returns in states where you previously remitted tax. 

Six months later, a state auditor sends a notice demanding back taxes, penalties, and proof that the marketplace facilitator tax rules applied to your transactions.

You owe thousands because some of your sales did not qualify for facilitator collection.

Marketplace facilitator tax laws shifted collection responsibility to platforms like Amazon and Etsy, but exceptions exist that still require sellers to collect and remit tax independently.

In this guide, you will learn how facilitator tax works and when you remain responsible.

What is the marketplace facilitator tax, and why does it matter?

Marketplace facilitator tax shifts sales tax collection from individual sellers to platforms, but not always, and not everywhere. Understanding where and when it applies is the foundation for compliance.

A marketplace facilitator is a business or platform that contracts with third-party sellers to facilitate retail sales. This includes platforms like Amazon, eBay, Etsy, and Walmart Marketplace. 

These platforms list products, process payments, and often handle fulfillment. Sellers are the businesses or individuals listing their products on these platforms.

States adopted marketplace facilitator laws to close tax loopholes and level the playing field between online marketplaces and traditional retailers.

Before these laws, sellers were responsible for calculating, collecting, and remitting sales tax in every state where they had nexus. This created significant complexity, especially for sellers using fulfillment centers or shipping nationwide.

Marketplace facilitator laws changed this dynamic. Now, platforms like Amazon and eBay collect and remit sales tax on behalf of their third-party sellers. The platform calculates tax based on the buyer’s location, collects it at checkout, and sends it to the appropriate state.

How the shift works in practice

• Pre-2019: A small jewelry seller manually filed sales tax returns in 23 states where they had nexus, tracking rates, deadlines, and exemptions
• Post-2019: Amazon handles most tax obligations for marketplace sales, but the seller still files for direct website sales through Shopify
• Hybrid seller: A business using both Amazon and its own website must track which sales are covered by marketplace facilitator laws and which remain their responsibility

However, the rules are not universal. Not all platforms are marketplace facilitators (Shopify and WooCommerce are not). Facilitators only handle tax for sales made through their platform. Sellers may still need to file returns even when no tax is owed, and direct sales always remain the seller’s responsibility.

Even with these new rules, many sellers still make costly mistakes that lead to audits, penalties, and operational headaches.

Costly marketplace tax mistakes (and how to avoid them)

Most sellers make preventable mistakes, like assuming the platform always handles tax or missing direct sales obligations, that lead to audits, penalties, or double-taxation.

1. Assuming marketplaces always handle all sales tax

Many sellers believe that selling on Amazon or eBay means the platform handles all tax obligations. This is incorrect. Marketplace facilitators collect and remit sales tax for sales on their platform, but sellers may still need to file returns or pay use tax on inventory stored in certain states.

2. Overlooking direct sales or non-marketplace channels

Multi-channel sellers often forget to track tax obligations for direct sales. If you sell on Amazon and your own Shopify store, Amazon collects tax for marketplace sales, but you are responsible for collecting and remitting tax on Shopify sales.

3. Ignoring state-by-state thresholds and exemptions

Each state sets its own economic nexus threshold and defines marketplace facilitator obligations differently. Some states require collection at any sales volume, while others set thresholds (often $100,000 or 200 transactions). Missing these details can lead to unexpected tax bills.

4. Double-taxation due to poor tracking

Without a centralized system, sellers risk paying tax twice on the same sale. This can happen if marketplace sales are reported on both marketplace and direct returns, or if reconciliation between payout reports and accounting records is incomplete.

5. Missed filings or late remittance from manual tracking

Ecommerce sales tax filing deadlines and frequencies vary by state. Manual tracking across multiple states and platforms often leads to missed or late filings, triggering penalties, even if no tax is owed.

Manual tracking of obligations across platforms often leads to missed filings or duplicate payments. To avoid these mistakes, you first need to know exactly what your obligations are. That starts with a decision framework.

Marketplace facilitator tax decision tree: Does your business need to collect and remit sales tax?

A clear decision tree helps you pinpoint your exact tax responsibilities so you know what to track and report.

Step #1: Identify your business model

• Are you a third-party marketplace seller (Amazon, eBay, Etsy)?
• Do you operate your own online store (Shopify, WooCommerce)?
• Are you a hybrid seller using both marketplace and direct channels?
• Are you a service provider or digital merchant?

Step #2: Map your sales channels

• List every place you sell: Amazon, eBay, Etsy, Walmart Marketplace, Shopify, BigCommerce, WooCommerce, brick-and-mortar, POS systems

Step #3: Determine who collects tax on each channel

• For marketplace facilitator channels, confirm the platform collects and remits sales tax in your states
• For non-facilitator channels (your own store, POS), you are responsible for collecting and remitting tax

Step #4: Calculate your annual sales and transaction volume in each state

• Add up sales from all channels in each state
• Compare totals to each state’s economic nexus threshold (often $100,000 or 200 transactions)

Step #5: Confirm your collection and filing obligations

• For marketplace sales, the platform usually collects tax
• For direct sales, you must collect and remit tax in states where you have nexus
• Many states require you to file a return even if a marketplace collects tax on your behalf

Here is an example. Jane sells handmade jewelry on Amazon and through her Shopify store. She is based in Ohio:

• Amazon sales: $75,000 annually
• Shopify sales: $35,000 annually
• Total: $110,000

In Ohio (her home state), Jane must register and collect tax on all sales. Amazon collects tax on marketplace sales; Jane collects tax on Shopify sales.

In Washington, the threshold is $100,000. Jane’s combined sales exceed this, so she must register and collect tax on all sales in Washington. Amazon collects tax on marketplace sales; Jane must enable tax collection on Shopify for Washington buyers.

Summary of likely obligations:

• Marketplace-only sellers: Platform collects tax, but you may need to file zero returns in some states
• Direct-to-consumer sellers: You collect and remit tax in all states where you have nexus
• Hybrid sellers: Platform collects tax for marketplace sales; you collect tax for direct sales. You must track thresholds and file as required

Now that you know your likely obligations, you need to check the specific rules for each state where you do business.

Suggested read: Ask the Experts: Sales Tax Concerns for Small Online Sellers

State-by-state marketplace facilitator tax triggers: What to check for your scenario

Every state sets its own trigger and tracking them manually is complex, but essential for compliance. Below are key states with their economic nexus thresholds and marketplace facilitator law status:

Table 1: State-by-state comparison

Tracking changing thresholds and rules manually across dozens of states quickly becomes overwhelming. For multi-state, multi-channel sellers, this complexity makes manual ecommerce sales tax compliance nearly impossible without a centralized system.

Once you know the rules, the real challenge is managing them across all your channels and platforms.

Suggested read: How to Simplify Ecommerce Bookkeeping

From compliance knowledge to execution: Why multi-channel sellers need centralized data

Centralized, automated data is the only way to stay compliant as you scale.

Each marketplace handles tax, payouts, and fees differently. For example, Amazon collects and remits sales tax on marketplace sales, but issues payout reports that do not always align with your accounting system.

Etsy may deduct fees before payout, while Shopify requires you to configure tax collection and does not remit on your behalf.

This fragmentation creates risks:

• Missed filings due to incomplete data
• Double taxation from reporting the same sale twice
• Delayed reporting and reconciliation

Webgility customers save up to 90% of time on reconciliation and month-end close. For example, Epic Mens saved over 80 hours a week by automating order and tax reconciliation across Shopify, Amazon, and QuickBooks.

A single source of truth for orders, fees, and taxes is essential. Webgility aggregates orders, fees, and tax data from all channels, updating your accounting and reporting in real time. This eliminates manual errors and ensures you never miss a filing threshold.

So, how do you build a compliance system that keeps you audit-ready and error-free?

Suggested read: eBay Accounting Guide: Simplify Taxes & Bookkeeping

Best practices for tracking and reporting marketplace facilitator tax

The right system turns compliance from a burden into a routine process.

Central data aggregation

Connect all channels to a single dashboard. This ensures every order, fee, and tax is tracked in one place, reducing manual entry and errors.

Tax mapping and automation

Configure tax rules once and automate threshold monitoring. This allows you to spot when you cross state thresholds and ensures correct tax rates are applied to every sale.

Reconciliation and reporting

Generate audit-ready reports and spot discrepancies quickly. Automated reconciliation highlights mismatches between marketplace payouts and accounting records, so you can resolve issues before they become problems.

Staying current

Subscribe to updates, review with a CPA, and use tools that flag changes in state rules. Regular reviews keep your system aligned with evolving requirements.

Accounting automation tools like Webgility centralize data from Shopify, Amazon, eBay, and more, mapping sales, fees, and taxes to your accounting automatically. Real-time dashboards and reconciliation reports keep you audit-ready and error-free.

Advanced considerations: Multi-channel sellers, exemptions, and special cases

Complexity grows with scale and exemptions, but automation keeps even the most complicated setups compliant and efficient.

1. Managing fragmented payouts and tax handling across platforms

Sellers using multiple marketplaces and direct channels often receive fragmented payouts and inconsistent tax handling. Ecommerce automation platforms reconcile payouts, map tax obligations, and flag exceptions across all sales channels.

2. Handling exempt or partially exempt products

Some products are tax-exempt or partially exempt in certain states. Automated systems can apply the correct tax treatment based on product type and location, reducing manual research and errors.

3. States with unique or evolving requirements

States like Colorado and Pennsylvania have unique rules for delivery fees or digital goods. Automation tools update tax rules in real time, ensuring compliance as requirements change.

Channie, a multi-channel seller, saved over 60 hours per month and scaled order volume by 250% by automating tax and order management. Many sellers use accounting automation platforms like Webgility to reconcile payouts, map tax obligations, and flag exceptions across all sales channels.

Understanding your obligations and automating compliance is the path to stress-free growth. As your business scales, automation turns tax compliance into background work, freeing you to focus on what matters most.

With the right systems in place, you close your books three times faster and focus on growth, not busywork. Review your current systems and consider where automation could save time and reduce risk.

If you are ready to simplify compliance, explore how automation can help with Webgility. Schedule a demo today.

Frequently asked questions (FAQs)

Do I still need a sales tax permit if the marketplace collects tax?

In most states, you must register for a sales tax permit if you have nexus, even if the marketplace collects and remits tax on your behalf. Some states require you to file zero returns.

Who is responsible for tax on returns or refunds?

The party that collected the original sales tax (marketplace or seller) is responsible for handling tax on returns or refunds. Check your platform’s policy and state rules.

How do I track tax obligations when selling on multiple channels?

Platforms like Webgility pull orders, payouts, and fees from all your channels automatically, align them with your tax rules, and prepare reconciliation reports, reducing manual work and minimizing errors.

What happens if I exceed a state’s economic nexus threshold through combined marketplace and direct sales?

You are responsible for collecting and remitting tax on direct sales and ensuring compliance for all channels once you cross the threshold.